
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.
In the competitive landscape of SaaS businesses, understanding customer behavior isn't just advantageous—it's essential. While traditional metrics like MRR and churn rates provide valuable snapshots, they often fail to reveal the deeper patterns that emerge over time. This is where cohort analysis enters the picture, offering SaaS executives a powerful lens through which to examine user engagement, retention, and revenue patterns.
Cohort analysis is a analytical technique that groups customers into "cohorts" based on shared characteristics or experiences within a defined time period. Rather than looking at all users as a single unit, cohort analysis examines how specific segments behave over time.
The most common type of cohort is time-based—grouping users who signed up or became customers during the same period (day, week, month, or quarter). However, cohorts can also be formed based on:
By tracking how these distinct groups behave over time, SaaS companies can uncover insights that might otherwise remain hidden in aggregated data.
According to research by Bain & Company, a 5% increase in customer retention rates can increase profits by 25% to 95%. Cohort analysis helps you understand retention patterns with greater precision.
When you track retention rates by cohort, you can see whether your product is improving over time. If newer cohorts show better retention than older ones, it suggests your product enhancements, onboarding improvements, or customer success initiatives are working. Conversely, if newer cohorts are churning faster, it may signal growing problems in your product-market fit or user experience.
Cohort analysis allows you to isolate variables and pinpoint causal relationships. For instance, you might discover that:
These insights enable more targeted investments and interventions.
For SaaS companies, predictable revenue is critical for strategic planning. Cohort analysis provides a more reliable foundation for financial projections by revealing:
According to OpenView Partners' 2022 SaaS Benchmarks report, companies that regularly perform cohort analysis report 15% more accurate revenue forecasts than those relying solely on aggregate metrics.
Before diving into data, clarify what specific questions you want to answer:
Based on your questions, decide how to segment your users and over what period to analyze them. For SaaS businesses, common approaches include:
While retention is the most common metric in cohort analysis, consider tracking:
The standard cohort analysis format is a table where:
Most modern analytics platforms like Amplitude, Mixpanel, and even Google Analytics offer built-in cohort analysis tools. For more customized analysis, many SaaS companies use tools like Tableau, Looker, or even Excel for smaller datasets.
Slack's meteoric rise to a $27.7 billion valuation wasn't accidental. According to former Slack executive Josh Pritchard, cohort analysis played a crucial role in their growth strategy.
By analyzing user activation by cohort, Slack discovered that teams who exchanged at least 2,000 messages were far more likely to continue using the platform. This insight led them to redesign their onboarding to encourage more early messaging and team engagement.
They also used cohort analysis to identify their most valuable acquisition channels. While direct sales generated larger initial contracts, the analysis revealed that viral, product-led growth produced cohorts with higher net revenue retention over time—informing their decision to double down on their freemium model.
Even within cohorts, averages can hide important patterns. Look for distributions and segments within your cohorts that might tell a more nuanced story.
Ensure each cohort has enough members to be statistically significant. Small cohorts can show misleading patterns due to random variation.
B2B SaaS companies often see different behavior from cohorts acquired in different seasons (e.g., fiscal year-end versus summer months). Account for these patterns in your analysis.
Start with a few key metrics that align with your strategic questions. Too many metrics can lead to analysis paralysis or misleading correlations.
If you're just getting started, focus on simple time-based cohort analysis of retention and revenue. Even basic insights can drive significant improvements.
Tools like ChartMogul and Baremetrics offer affordable, easy-to-implement cohort analysis for companies using popular payment processors.
As you grow, invest in more sophisticated customer analytics platforms that can segment cohorts dynamically and connect behavior to outcomes.
Consider appointing a specific team member to "own" cohort analysis and report findings regularly to leadership.
Cohort analysis isn't just another report—it's a fundamental shift in how you understand your customers and your business. By revealing how different user segments evolve over time, it creates a foundation for more informed product decisions, marketing investments, and growth strategies.
In an industry where customer acquisition costs continue to rise and investors increasingly focus on retention metrics and sustainable growth, cohort analysis offers SaaS executives the deeper insights needed to build lasting competitive advantage.
The SaaS companies that thrive in the coming years won't be those with the biggest marketing budgets or the most features—they'll be the ones that best understand their users' journeys and optimize every stage of the customer lifecycle based on cohort-level insights.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.